Cryptocurrency trading has evolved a lot over the past few years. Now, more and more people feel like they can engage in this activity and be successful. With this increasing popularity comes variety. Also, a few types of crypto trading that are definitely interesting. In this article, we will be detailing arbitrage crypto and what it actually means.
Cryptocurrencies have been around for quite some time. This means that their prices vary from one exchange to another. People who do this regularly should know that some exchanges are more advantageous for clients than others. The concept of cryptocurrency arbitrage means that one can use leveraging prices to one’s advantage. Therefore, people can buy crypto from one specific exchange and sell it to another one immediately. Here are more details about arbitrage crypto, what it is, and how it works.
More about arbitrage crypto
Crypto arbitrage is a trading technique that involves traders who can make a profit based on the high volatility level of the cryptocurrency market. The trick, however, is for people to make these trades instantaneously. If that doesn’t happen, the market can change in an instant. Your possible profit can become a loss. As with any other type of trading, there are numerous risks involved. One can never be too sure where they stand.
The beginnings of the term arbitrage coincide with the creation of the stock market. It is quite a simple concept. It involves buying an asset from a market only to sell it to another one. This is all for profit. The listing prices on the chosen exchanges provide the individual with this profit.
Trading volume changes, as well as inefficiencies, usually cause these market fluctuations that people can take advantage of. Usually, smaller exchanges follow the prices set by the big ones. However, this doesn’t happen in an instant. That’s where arbitrage crypto comes in. To offer a clear example, you find out that Bitcoin is listed with a higher price on exchange X and a smaller one on exchange Y. You can buy BTC from exchange Y and sell it on exchange X. The price difference goes in your pocket.
Types of arbitrage crypto
Mainly, there are four different types of arbitrage crypto that people can engage in when they want to make a profit.
The first one is called triangular arbitrage. It is actually the arbitrage performed between different markets. We have already explained how this one works. Then there is spatial arbitrage which means a triangular arbitrage but for three exchanges. It works exactly the same but it’s only a bit more complex. That’s mostly because you now have one more exchange to worry about.
Cross-border arbitrage involves taking advantage of the price difference on two exchanges located in different countries. You can also do this with three exchanges as we have already mentioned. Finally, the final type is statistical arbitrage. It means that one needs to use mathematical modeling in order to pull it off successfully. It is the riskiest crypto arbitrage type and not recommended for beginners or casual traders.
The arbitrage crypto process
Searching for an opportunity is where the process of crypto arbitrage begins. Once you found it, you need to be quick. Your order book can help you greatly when it comes to documenting how much you will make out of a specific opportunity. If you are happy with it, you can proceed. Most of the time, transactions are completed within twenty minutes for the major cryptocurrencies. If you are unlucky and the market price decreases within this time frame, your arbitrage might be smaller.
Simultaneous arbitrage can be done but it’s incredibly rare due to the high market volatility. There are instances when you can wait for days to perform a profitable arbitrage. Also, make sure that you are paying attention when you are doing this. Analyze your buy and sell listings carefully so you don’t end up in a bad situation.
There are also some programs that can perform arbitrage crypto for you. However, security is the first thing to consider in this case. Keep in mind that in order to perform arbitrage you need to have accounts on various exchange platforms. This means a very high risk when it comes to your personal and bank details. All in all, arbitrage crypto can be very profitable when done right and safely.
Speaking of exchanges and cryptocurrencies, it’s time we recommended you a trustworthy platform that can help you perform arbitrage. AlphaFXC Trading is an online brokerage firm with a highly professional and experienced team behind it whose sole goal is to fulfill the needs of the customers when it comes to trading and investing. The offer of this broker includes more than one thousand CFD and forex tradable assets along with cryptocurrencies and trade commission that is as low as 0.87% and a charge for each position that is as low as 0.82%, according to the official website.
